Monday, May 25, 2009
Friday, May 22, 2009
by Tim Evans of Lind-Waldock
We all witnessed a global equity market meltdown of equity prices over the last 12 months. During the same time frame, we saw a boom-and-bust cycle in commodities. In my opinion, we are now in the middle of a significant shift in dynamics for currency markets throughout the world.
Just like any market, the value of a currency is determined by fundamental supply and demand factors. On the demand side of the equation, a currency is more valuable when its respective economy is growing. If the economy is active and money is flowing into a country, this is viewed as positive for the country’s currency. To put it simply, an active and growing economy creates demand for the currency.
Interest rates also have a strong affect on the value of a currency. The old adage in the trading world is “money chases yield.” Money will seek the highest return by flowing to a country with higher interest rates. Therefore, demand will grow for the currency in the country with higher interest rates. Higher demand often leads to a stronger currency. (more)
U.S. Stock Market – Weakness in the final hour strongly suggests the tremendous bear market rally is petering out. Technically, you can’t rule out another try to the upside but unless breath and volume greatly expand, it would just set us up for an even bigger decline. Remember, I don’t believe we’re straight down this time around but rather a slow bleed for several months ahead.
While the “Don’t Worry, Be Happy” crowd has pulled out all stops in their quest to
manufacturer “green shoots”, what we’re likely to witness at best is a lessening of the descent in economic activity. The “happy” people would like you to believe we can go from crash to recovery without a recession. Maybe on CNBC that can play (after all, it’s the home of fantasies) out but in the real world we’ll need many months of flat growth before any sustained recovery can take place.
Foreign Stock Markets – As you know I sold off all exposure to equity markets worldwide. If you put a gun to my head (I hope this doesn’t give anybody thought), I would have exposure to China but even there the recent pop up economically seems to be flattening out. (more)
Marc Faber was interviewed by Max Keiser. Most of the interview is in the second part of the video. Among the topics covered include inflation, gold, and the current economic environment.
“In the long run, this will be an inflationary environment” (more)
Back in the mid-’90s, when Anglo American’s gold division (AngloGold, as it came to be called) was more or less happy to be a South African company, management strategy was simple. The idea was to hedge about 10% to 20% of annual gold production forward for each of the coming five years. Annual revenues would be protected from a fall in the gold price and, should gold rise, the company would benefit from the rise on 80% to 90% of its output.
The company’s hedge book was then in the region of 100 tons of gold against annual production of about 200 tons.
But international expansion entered the picture. Under Bobby Godsell, AngloGold started heading out of South Africa. (more)